California Real Estate Practice Exam

If the value of a property increases through no efforts, thinking, or planning on the part of the owner, what is such an increase called?

1. Incremental gain

2. Unearned Increment

3. Earned Equity

4. Passive Appreciation

The correct answer is: Incremental gain

The situation described, where the value of a property appreciates without any active effort, thought, or planning on the part of the owner, is accurately termed an "unearned increment." This type of appreciation occurs due to external factors such as market conditions, increased demand in the area, or improvements in local infrastructure, which enhances the overall value of the real estate without any direct action from the owner. In contrast, terms like "earned equity" refer to value increases resulting from deliberate investments or improvements made to the property. "Passive appreciation" could imply a more general sense of value increase over time but does not specifically capture the essence of the "unearned increment," which indicates that the owner did nothing to facilitate the increase. "Incremental gain" is also not a widely recognized term in this context, further distinguishing the concept from the correct terminology regarding appreciation due to external forces. Thus, the term "unearned increment" is the most precise and appropriate label for this type of property value increase.